Spotlight on oil and gas megaprojects - Oil and gas capital projects series
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Oil and gas capital projects series Spotlight on oil and gas megaprojects
Table of contents Megaprojects becoming the norm in the oil and gas industry ................................1 Evaluating the performance of megaprojects ...............................................3 Root causes of cost overruns and delays ..........8 How EY can help ............................................12 Research methodology ..................................13
Megaprojects — the new norm
in the oil and gas industry
The oil and gas industry is witnessing an unprecedented wave of capital spending, driven by
the need to build capacity to meet growing energy demand from emerging markets and to
replace depleting supply sources. This capital expenditure has, to date, been underpinned
by consistently higher oil prices, globally and gas prices outside North America. This trend
is expected to continue. In its World Energy Investment Outlook 2014, the International
Energy Agency (IEA) estimates a cumulative investment of US$22.4t in the global oil
and gas sector between 2014 and 2035, equivalent to an average annual spend of more
than US$1t. As shown below in Figure 1, spending will be dominated by North America
(particularly the US), Europe and Asia-Pacific.
Figure 1: Regional cumulative oil and gas investment
between 2014 and 2035 (US$t)
2.7 0.4 22.4
4.0
2.3
2.7
4.6
5.8
North Europe Latin Africa Asia- Middle Inter- Total
America America Pacific East regional
Source: World Energy Investment Outlook, International Energy Agency, June 2014.
In its Outlook, the IEA expects oil and gas spending to increase sharply, increasing by almost
50% from its average of US$678b per year over the 2000–2013 period. Industry spending
will continue to be dominated by spending in the upstream segment — accounting for about
77% of total industry spending. Midstream or transportation-related spending, in particular
for pipelines and storage, will account for about 13% of total spending, with cumulative
natural gas transportation spending of about US$1.9t and oil transport spending of about
US$1t over the 2014–2035 period. Downstream spending will account for the remaining
10%, with cumulative spending in oil refining of US$1.4t and spending on liquefied natural
gas (LNG) projects of about US$0.7t. In total, oil-related spending will account for about
61% of total spending, with the remaining 39% made up of natural gas-related spending
Megaprojects are fast becoming the norm
and are critical for stakeholders.
As the era of “easy oil” approaches its end, industry players are looking to diversify their
portfolios by tapping into emerging opportunities in unconventional oil and gas and frontier
areas, such as:
• Shale gas • Light tight oil • Oil sands • The Arctic
• Coal seam gas • LNG liquefaction • Ultra-deepwater
To commercialize these opportunities as well as unexploited conventional reserves,
companies are increasingly engaging in multibillion-dollar technically and operationally
demanding projects called megaprojects.
Spotlight on oil and gas megaprojects | 1
Given their size and scale, megaprojects have strategic importance for all
The effect of project stakeholders involved:
delivery on share price: • Oil and gas companies often must invest huge sums over a long payback period. If
executed well, these projects create a competitive edge and enhance enterprise value;
• A multinational oil and gas however, where execution is poor, the result may be a project that is economically
company’s share price fell in uncompetitive. To limit risk exposure, many of the larger oil and gas companies often
September 2013 after the participate in megaprojects through complex operator or non-operator joint venture
company lowered its production agreements. This added complexity, combined with the high-risk, high-value nature of the
outlook for 2014, citing delays in projects, presents a challenge for companies in managing their total portfolio risk.
the start-up of projects in Nordics
and Middle East. • Governments and local communities have an equally keen interest in these projects as
they have the potential to drive a region’s environmental and economic development.
• An integrated energy company’s The decision to unlock natural resource wealth needs to be balanced against longer-
share price dropped in February term interests and environmental issues. High-profile environmental incidents mean
2013 after it had booked a cost that local groups are acutely aware of the importance of safe, environmentally sensitive
increase of US$1.65b for an developments.
Australian LNG plant.
The increased technical and commercial complexity, along with the commercial,
environmental and political cost and risk, means that oil and gas megaprojects are under
intense and growing stakeholder scrutiny.
Where organizations Consequently, high levels of transparency, value-adding assurance and proven delivery
capabilities are needed to secure economically attractive funding, resource access
develop a reputation rights and corporate approvals. These prerequisites are vital to successfully delivering
for successful delivery megaprojects on time and on budget.
and environmentally Where organizations develop a reputation for successful delivery and environmentally
conscious development conscious development of megaprojects, they will often develop a competitive advantage
over their less successful rivals, becoming a preferred partner, gaining preferential access
of megaprojects, they rights and cheaper finance, and (most tangibly) seeing an increase in share price.
will often develop a
competitive advantage. Yet despite the risk and opportunity, projects continue
to exceed budgets and deadlines.
Our comprehensive research into the performance of 365 megaprojects shows that despite
the importance of project performance as it relates to enterprise value and share price,
a high percentage of projects fail to deliver on time or meet approved budgets. While
our research is a detailed review of current industry performance, longer-term industry
outlooks suggest that project delivery success is actually decreasing, especially in certain
segments of the industry, such as deepwater, where complexity is considerably higher.1
In this, the first of our Capital Projects series, we review project performance in the oil and
gas industry across the project life cycle (before and after the final investment decision)
and introduce the varied causes of project failure to meet planned targets.
1
For details pertaining to methodology and sources, please refer to the “Research methodology” section
at the end of this report.
2 | Spotlight on oil and gas megaprojects
Evaluating the performance
of megaprojects
We conducted a study to gain a greater understanding of the challenges associated with the delivery of
megaprojects in the oil and gas industry. As part of the study, we identified 365 projects with a proposed capital
investment above US$1b in the following industry segments: upstream, LNG, pipelines and refining. These comprise
projects that have been proposed but have yet to reach the final investment decision (FID), as well as those that
have passed the FID and are in the construction phase but have yet to begin operations. Cumulatively these projects
comprise approximately US$2.6t and are globally distributed across the four segments (Figures 2 and 3).
Figure 2: Investment and number of projects by segment
Upstream LNG Pipeline Refining
Investment (US$b) 1,080 539 348 607
Number of projects 163 50 46 106
Average project size (US$b) 6.6 10.8 7.6 5.7
0% 20% 40% 60% 80% 100%
Source: EY research and analysis.
Figure 3: Distribution of investment by region (US$)
Europe
Asia-Pacific
North America
$379b
$482b $945b
Middle East
$206b
Africa
Latin America
$350b
$214b
Source: EY research and analysis.
Spotlight on oil and gas megaprojects | 3
We found that cost and schedule overruns were common in all industry segments and
Our research shows that the regions, though the data set out in Figure 4 and the map below suggest that certain
majority of projects are facing segments and geographies perform far more poorly than others.
delays and/or cost escalations and Our findings are largely aligned with the observations of the Independent Project
these overruns are prevalent in all Analysis (IPA) 2011 industry study. In that study, the agency found that 78% of
of the segments and geographies. upstream megaprojects faced either cost overruns or delays, a deterioration from 2003,
when 50% of the projects were over budget or late.2
64%
of the projects
are facing cost
overruns.
73%
of the projects
are reporting
schedule delays.
We evaluated the performance of
megaprojects on two criteria — cost
and time — to gauge the proportion
of projects that are forecast to fail to
deliver on budget and schedule. Of North America
the 365 megaprojects, cost data was
available for 205 projects and time
data for 242.
58% Proportion of
projects facing
cost overruns
The study revealed that the majority
of the projects were delayed and/or 55% Proportion of
projects facing
faced cost overruns when measured schedule delays
against estimates made during the
initial stages of the project life cycle. 51% Average project
budget overruns
Latin America
57% Proportion of
projects facing
cost overruns
71% Proportion of
projects facing
schedule delays
2
“Oil services & equipment, subsea perspectives from
an industry observer,” Jefferies, 24 January 2014,
102% Average project
budget overruns
via Thomson One.
4 | Spotlight on oil and gas megaprojects
Figure 4: Proportions of projects facing cost overruns,
Europe schedule delays and average project budget overruns
53% Proportion of
projects facing 67%
cost overruns Proportion of projects 64%
facing cost overruns 62%
74% Proportion of
projects facing
65%
schedule delays
68%
57% Proportion of projects
Average project 50%
budget overruns facing schedule delays 79%
78%
70%
Average project 41%
budget overruns 69%
53%
0% 20% 40% 60% 80% 100%
LNG Pipeline Refining Upstream
Source: EY research and analysis.
Asia-Pacific
68% Proportion of
projects facing
cost overruns
80% Proportion of
projects facing
schedule delays
57% Average project
budget overruns
Africa Middle East
67% Proportion of
projects facing 89% Proportion of
projects facing
cost overruns cost overruns
82% Proportion of
projects facing 87% Proportion of
projects facing
schedule delays schedule delays
51% Average project
budget overruns 68% Average project
budget overruns
Spotlight on oil and gas megaprojects | 5
High cost escalations exacerbate Figure 5: Proportion of post-FID projects facing overruns
underperformance
For the 205 projects where cost data were available, we see
that current project estimated completion costs were, on
35%
average, 59% above the initial estimate. In absolute terms,
Overrun
the cumulative cost of these projects has increased to
On budget
US$1.7t from an original estimate of US$1.2t, representing
an incremental cost of US$500b. Interestingly, due to the 65%
nature of the projects we assessed and the “point-in-time”
approach we took to reviewing them, the final cost of projects
was not assessed. It is therefore possible that cost and schedule
delays measured at project completion may be even higher
than we report in this paper. Source: EY research and analysis.
The results indicate that this problem is prevalent across all
segments (Figure 4) and geographies (please see map on preceding Figure 6: Cost variance distribution — post-FID projects
page) but that causal differences exist due to the profound impact
of certain segment- and/or region-specific issues, such as local 75%–100% 3
content regulations or labor relations.
50%–75% 1
Post-FID performance is equally poor
Current vs. FID
Cost overruns:
While the escalation of cost pre-FID is important, in that project 25%–50% 4
estimated cost often affects project selection and approval
decisions, it is in the post-FID, project delivery phase that capital
< 25% 5
expenditure (and therefore risk) increases significantly. Noting the
importance of project delivery post-FID, we also analyzed a sample
made up of the largest 20 post-FID projects. Sixty-five percent of On budget 7
the projects analyzed were facing cost overruns (Figure 5) with
Number of projects
an average escalation of 23% from the approved FID budget;
Source: EY research and analysis.
the distribution of the overruns is provided in Figure 6.
Completion than initial
costs are cost estimates,
59% higher on average,
representing an
incremental cost
of US$500b.
6 | Spotlight on oil and gas megaprojects
Are such levels of overrun sustainable?
Oil and gas price increases during the past decade have masked many of the consequences of
megaproject overruns, but this trend seems unlikely to continue. Unconventional discoveries
have already had an impact on the economic viability of many megaprojects. Therefore, if the
industry is to secure the required investment to supply future energy demand, it must deliver
improved performance in the delivery of its capital projects, especially megaprojects.
In the post-downturn economic environment, where predictability is highly valued, companies
need to be certain that their capital programs are successful, that benefits are realized and that
productivity levels are sustainable. Failure to effectively deliver projects on time and budget
or within environmental/regulatory requirements (as projects continue to become larger and
more complex) will have major repercussions on an organization’s revenue performance and the
willingness of investors to participate in future ventures, as outlined below:
• Project economics: Missing critical project milestones typically leads to projects losing
momentum and often entering a vicious cycle of overruns and underperformance,
ultimately eroding project value. In 2013, UBS reported that projects that were unable
to deliver planned production levels in line with budget and schedule saw their net asset
values (NAVs) reduced between 12% and 65%, depending upon the rates of return, life of
project, capital intensity and fiscal regime.3
To add to this risk, many of the projects (currently in delivery or the later stages of
development) were commissioned when oil and gas prices were on an upward trajectory
that no longer exists. Over time, price stability and, in some cases, falling prices (e.g., gas
prices in North America) have weakened the economics of many projects, with margins
under increasing pressure.
• Company performance: The nature and size of megaprojects mean that participating
companies must commit enormous resources and take on significant risk. Therefore,
missing targets in one or more of these multibillion-dollar projects can have major
implications for company financial performance, either through increased demand on
capital (potentially leading to lost opportunities and increased cost of borrowing) or loss
of revenue through missed production dates.
• Shareholder expectations: In the current business environment, in order to secure
economically attractive project funding, companies must respond to the ever-increasing
pressure and increased scrutiny from stakeholders to prove that they are rapidly and
effectively delivering on their plans and strategy. Stakeholders increasingly demand improved
return on investment and capital discipline, along with reduced risk and exposure. There is a
strong emphasis on the speed of converting projects into productive assets, in line with the
agreed-upon schedule and within budget. A failure to meet these expectations has in many
instances resulted in loss of shareholder confidence and an increase in cost of capital.
The high number of overruns in oil and gas megaprojects which we identified in our
research is not particular to the industry and also has been identified in other sectors,
including government, real estate construction, mining, and power and utilities.
However, these repeated failures do raise serious questions as to the oil and gas industry’s
ability to develop accurate, unbiased FID budgets/schedules and subsequently to deliver to
them. Noting the impact of poor megaproject delivery on a company’s success, in the next
section we outline the typical root causes of project failure.
3
“European E&P – sector reflector,” UBS, 5 December 2013, via Thomson One.
Spotlight on oil and gas megaprojects | 7Root causes of cost overruns and delays
Industry performance data suggests that the factors that result in budget overruns or schedule delays are
common across oil and gas projects; however, due to their scale, complexity and cost, the impact is more
profound on megaprojects.
Industry research suggests that non-technical issues are responsible for the majority of the overruns; Credit
Suisse’s takeaways from the Offshore Technology Conference 2013 were that 65% of project failures were due
to softer aspects such as people, organization and governance. A further 21% were caused by management
processes and contracting and procurement strategies, with the remaining 14% of the failures due to external
factors such as government intervention and environment-related mandates.4
In the following section and Figure 7 below, we set out the key non-technical internal and external factors
commonly behind project delays or overspend.
Figure 7: Factors responsible for cost overruns and delays
Portfolio and
project Project Project Regulatory Geopolitical
commercial development delivery challenges challenges
context
Inadequate
JV conflict Ineffective
planning — HSE risk and Diplomatic and
and relationship project
overly aggressive local content security issues
challenges management
forecast
Poor Poor Regulatory Financial and
Access to
procurement contractor delay and policy supplier market
funding
of contractors management uncertainty uncertainty
Poor portfolio
Aggressive Civil and
management Human capital Inadequate
estimates and workforce
and changing deficit infrastructure
optimism bias disruption
risk appetite
Internal External
factors factors
4
“Quarterly — Brazil tracker,” Credit Suisse 20 January 2014, via Thompson One.
8 | Spotlight on oil and gas megaprojects1. Portfolio and project commercial context 2. Project development
The commercial context in which projects are developed is In line with the adage “Failing to plan is planning to fail,”
critical to project success, often determining: experience shows that a lack of appropriate front-end
loading and an unhealthy focus on project sanctioning often
• Skills and resources available
results in the setting of unrealistic, overly aggressive goals
• Cost of capital which become serious delivery issues as projects move beyond
FID into delivery.
• Partners involved
Key challenges:
• Total risk taken on by each stakeholder
• Inadequate planning: failure to appropriately consider
Key challenges:
design, construction, commissioning and operational issues
• Joint ventures (JVs): joint ventures are becoming (including external factors such as cycles of extreme weather)
increasingly common across the industry, especially on during project initiation and FEED stages has a detrimental
complex projects in challenging environments, or in emerging effect in subsequent project phases. This often leads to
markets where resource access agreements between the changes in project scale or design (including revisions to key
national government and the international oil company target markets and sources of supply) and typically results in
(IOC) often stipulate involvement of the national oil company significant rework for both the company and contractors.
(NOC). These agreements can be complex, and delivery issues
• Procurement of materials and delivery contractors:
are often exacerbated by divergent investment rationale,
selection of contractors and the contracts through which an
project assessment criteria and tolerance for project risk.
organization engages with its third parties are key to project
• Access to funding: the stake given up to investors, the success, because poor selection decisions have significant
cost of capital and the mechanism for sharing risk are key consequences. Frequently we see decisions based too heavily
factors to consider when embarking on the development of on cost, with insufficient emphasis placed on quality, despite
a megaproject, with each component potentially impacting the known impact of quality on project cost and schedule
project economic viability. performance later in the project life cycle.
• Portfolio management and project selection: frequently • Aggressive estimates and optimism bias: linked to
a lack of clear strategic direction and project selection contract cost forecasts, a key question when assessing
criteria means that over time, organizations develop overly project performance to cost and schedule targets is
diverse and poorly aligned project portfolios, which often whether the targets set out at the preceding milestone
unnecessarily stretch resources, increase portfolio risk (most critically at FID) were accurate or achievable. The
and dilute the potential value of inter-project linkages. It mechanism by which projects are proposed and selected
is therefore critical to select and subsequently approve within organizations, frequently through sponsorship by
appropriate projects that align to company capability, individuals closely involved in project development, means
experience and strategy. that selection is open to the risk and influence of optimism
bias and an underestimation of project risk and complexity.
By developing a balanced portfolio of projects, with each project
Where optimism bias goes unrecognized or unchallenged,
being delivered under an appropriate commercial agreement
there is a risk that projects with unsound commercial
(JV structure, partners, funding, etc.) and with adequate support
grounding are taken forward, creating problems for project
(internal sponsorship and resources), organizations position
teams later in the project cycle and adding unknown and
themselves well to effectively manage the various challenges
unnecessary risk to an organization’s wider project portfolio.
associated with successfully delivering megaprojects.
Spotlight on oil and gas megaprojects | 93. Project delivery 4. Regulatory challenges
The delivery of megaprojects is an expensive, highly complex Increasing focus on the environmental impact of projects,
task that entails the combination of leading-edge technology, greater regulatory requirements and continued policy
operation in new geographies and multiparty governance. The uncertainty all impact project performance. These regulatory
sheer size and scale of current and proposed projects present demands are likely to continue to increase.
challenges for the project team and owner organizations
Key challenges:
throughout the project life cycle, especially in delivery, where
capital expenditure and schedule demands are at their greatest. • Health, safety and environment (HSE) and local content:
in the “zero tolerance to accidents” environment that now
Key challenges:
exists, megaprojects are increasing their expenditure on
• Ineffective project management: project plans often leave out compliance to HSE standards. While there is no doubt that
the necessary schedule management elements of schedule this is a positive move, without close management, costs
development, acceptance, progress measurement and can quickly escalate. Similarly, investment into compliance
reporting, and their relationship to and interdependence with with local content regulations is increasing in an attempt to
other project disciplines, meaning that project teams fail to overcome the short- and medium-term logistical challenges
fully understand critical activities and the full effect of change of sourcing goods and services in a local market.
on the schedule and other work packages. The challenge of
• Regulatory delay and policy uncertainty: oil and gas
working with multiple contractors, each with separate but
companies worldwide have faced hurdles in obtaining timely
often interlinked work scopes, exacerbates this planning
regulatory approval for their megaprojects, with delays
problem as real-time data is challenging to recover. As a result,
caused by issues such as the need to obtain permits from
performance and the impact of change are difficult to model or
multiple government bodies, unclear regulatory requirements
assess. Best-practice examples exist where effective, interlinked
and overly bureaucratic processes.
work breakdown structures exist with real-time data input;
however, these are too often set up as a response to poor • Inadequate infrastructure: limited existing infrastructure
project performance, instead of as a pre-emptive measure. has meant that in many developing markets, companies
are required to invest in the development of water, power,
• Poor contract management: inadequate equipment capacity
rail, road and accommodation projects to gain access to
and poor quality of service from vendors are common
resources. The challenge of these often costly and time-
challenges for large projects. A surge in upstream activities
consuming ancillary activities is aggravated by remote
worldwide has resulted in a sharp rise in demand for
locations and extreme climatic conditions.
equipment and services, particularly for high-specification
equipment and specialized services. Against this backdrop,
a lack of adequate suppliers — including Engineering,
Procurement and Construction Management (EPCM)
and Engineering, Procurement and Construction (EPC)
Implementing project management
contractors with the requisite capabilities, processes and tools and best practices, including
systems — has created bottlenecks in the entire supply interlinked work breakdown structures
chain. Inadequate contractor supervision at each stage of
the project life cycle increases supply chain risk, exposing with real-time data input, at the outset
projects to excessive variations or contractor claims, often of a project can improve performance
without the resources or expertise to challenge them.
and reduce risk of cost overruns and
• Human capital deficit: heightened project activity in the
schedule delays.
global oil and gas sector has been exerting pressure on
key resources such as labor, and as a result, companies are
struggling to secure the capabilities, capacity and expertise
required to effectively manage their most challenging
projects. The challenge of securing resources is aggravated by
the rising complexity of projects, increasingly stringent local
content regulations in emerging economies, and a gradual
shift in focus from conventionals to unconventionals, where
the talent pool is under even greater strain.
10 | Spotlight on oil and gas megaprojects5. Geopolitical challenges
External market and political forces also influence the progress • Civil and workforce disruption: the power of local
of megaprojects. Given the value of the investments at stake, communities, environmental groups and other interested
the impact of any major change in these forces can be severe on parties to influence or even disrupt the sanction of
the overall project economics, meaning that in some instances megaprojects continues to increase. High-profile project
companies may consider delaying or even canceling projects. delays in recent years (for example, Ichthys LNG and Keystone
XL Pipeline) show organizations should gain the support of
• Diplomatic and security issues: oil and gas companies
local groups and a “social license to operate.” Organizations
have been forced to delay investment in megaprojects on
developing megaprojects, where workforces are large or
account of unstable political situations and persistent security
typically highly unionized, must also consider the risk of
concerns, such as the sectarian insurgencies in the Middle
workforce disruption. For example, LNG projects in Australia
East and North Africa. Failure to resolve points of conflict can
have been particularly affected as heightened activity across
result in delays or even postponement of projects. Noting the
Australasia strained the supply chain, leading to competition
growing tensions in some oil-rich regions, companies must
for a limited pool of workers. The issue was then compounded
now carefully consider the potential cost of investment, as
by workplace laws requiring companies to negotiate
the perceived value of investment must be balanced against
agreements with unions before initiating work but without
the political and ethnic environment, as well as the potential
any time limit for negotiations.5
impact of current investments on future opportunities.
• Financial and supplier market uncertainty: some
megaprojects have been delayed due to changes in
market fundamentals.
It’s critical to determine how controllable these
factors are and the extent to which they could
• Global economic downturn: after the 2008 global result in cost and time overruns. Clearly the
economic crisis, many oil and gas companies chose to external environment and regulatory- and policy-
delay their less time-sensitive refinery projects or delay
related changes are less controllable or predictable
their projects to reduce capital spend.
than project management issues, stakeholder
• Commodity constraints and pricing: increased demand conflicts and resource constraints. However, while
for raw materials such as steel and concrete ultimately these issues aren’t so easily controlled or able
feeds through to higher prices. While commodity prices to be forecast, the industry can do far more to
have now subsided, organizations need to be aware of how mitigate and prepare for them so that their effects
the lag between investment case preparation and project
can be more adequately managed within the
construction can affect project commodities spend.
project environment.
• Exchange rate fluctuations: major fluctuations in local
currency exchange rates can affect project costs where
In the subsequent articles within this series, we will
they are accounted for in currencies different from explore the issues introduced here in more detail,
those of funding/investor organizations. A case in point highlighting the risks of inaction as well as industry
is Australian projects, where appreciation of the local best-practice management/mitigation strategies
currency against the US dollar has been a contributing for overcoming project delivery challenges and,
factor to project cost escalations. where possible, taking advantage of them.
• Transformation in the natural gas industry: weak gas
demand from Europe, rising shale gas production from
North America and competition from new LNG projects
have created uncertainty around the future demand for and
price of natural gas. This has impacted the assumptions,
business case scenarios and ultimately the competitiveness
of potential gas projects under consideration.
5
“High-cost Australia may miss $180 bln LNG expansion wave,” Reuters News,
11 April 2014, via Factiva, © Reuters.
Spotlight on oil and gas megaprojects | 11How EY can help
Given the range of disparate factors that make up the oil and gas landscape, and
the challenges and pitfalls inherent in the delivery of megaprojects, companies are
struggling to effectively deliver on their agreed-upon plans and strategies. Compounding
these delivery challenges, capital projects are now delivered in an environment where
stakeholders increasingly demand improved performance, reduced risk and greater
transparency over delivery decisions.
Prior to and during investment, stakeholders increasingly ask for independent assessment
of key decisions and plans. While often stakeholder-driven, the benefits derived from
independent assessment and challenge, both in terms of pacifying stakeholder demands
for transparency and ensuring unbiased assessment of project business case, delivery
plans, budgets and key stage-gate decisions, mean that it is now a valued tool for portfolio
managers and board executives who wish to avoid the optimism bias commonly seen on
failing projects.
With our closely linked transactions advisory, tax and advisory service teams, and our
global team of mobile capital projects industry professionals, EY is able to provide
independent, whole-life support and advice to our clients. We have proven industry
skills covering the full life cycle of a capital project, from inception and setup of the
commercial delivery structure through feasibility studies and into project delivery,
construction and commissioning.
The depth of our commercial knowledge, across sectors and project life cycles, means that
our capital projects team is ideally positioned to help you manage the risk of your capital
projects and portfolio, uniquely acting through direct intervention; supporting management
teams on specific projects in development, construction or commissioning; or advising on
portfolio risk and performance and stage-gate approval decisions at the board level.
We have a history of helping global oil and gas organizations overcome the different
capital project issues outlined within this document, gathering and developing leading
practices collaboratively with our clients. That experience and our close working links
with the major construction and engineering firms mean that we are able to play an
active and valuable role in almost any team and can quickly source skills and advice as
and where our clients’ needs arise.
12 | Spotlight on oil and gas megaprojectsResearch methodology
The section on “Evaluating the performance of megaprojects” in
this report is based on the review of 365 projects with a proposed
investment of above US$1b in the upstream, LNG, pipeline and
refining segments of the oil and gas industry. We have covered
projects that have been proposed but have yet to reach the final
investment decision (FID) and those that have passed the FID and
are in the construction phase but have yet to begin operations. Of
the total number of megaprojects (365), updated cost data and
time data was available for 205 and 242 projects, respectively.
The following steps were used to prepare a projects database:
Step 1. Projects were identified based on the above-mentioned
criteria using the following sources:
1. “Upstream Projects Database,” Business Monitor
International, accessed in May 2014.
2. “World’s LNG liquefaction plants and regasification
terminals,” Global LNG Info, www.globallnginfo.com,
accessed in July 2014.
3. “Global Refinery Projects,” A Barrel Full website,
http://abarrelfull.wikidot.com/, accessed in July 2014.
4. “FMC Technologies: Tour d’ FMC - a confluence of cycles,”
Macquarie Research, 12 June 2013, via Thompson One.
5. Company websites and reports.
Step 2. Post-project identification, the initial feasibility stage,
FID and current cost estimates, as well as the planned start-up
date, were identified using the following sources alongside those
listed in Step 1 above:
1. Analyst reports via Thomson One
2. Company websites and annual reports
3. Press announcements via Factiva and company websites
Disclaimer: These projects and their details have been prepared
on a best-effort basis and do not represent an exhaustive list
of the information. While the findings are based on publicly
available data, the performance of individual companies and
projects is not discussed or disclosed. Any broader industry
commentary is based on general industry observations and not on
the views of any single organization.
Spotlight on oil and gas megaprojects | 13Contacts EY | Assurance | Tax | Transactions | Advisory
To discuss how we can help you with capital projects, please About EY
contact any of the following members of our global team: EY is a global leader in assurance, tax, transaction and advisory services.
The insights and quality services we deliver help build trust and confidence
Axel Preiss in the capital markets and in economies the world over. We develop
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How EY’s Global Oil & Gas Center can help your business
Craig Hogget The oil and gas sector is constantly changing. Increasingly uncertain energy
Partner policies, geopolitical complexities, cost management and climate change
CHoggett@uk.ey.com all present significant challenges. EY’s Global Oil & Gas Center supports a
global network of more than 10,000 oil and gas professionals with extensive
Claus Jensen experience in providing assurance, tax, transaction and advisory services
Partner across the upstream, midstream, downstream and oilfield service sub-
cjensen@uk.ey.com sectors. The Center works to anticipate market trends, execute the mobility
of our global resources and articulate points of view on relevant key sector
Chris Lewis issues. With our deep sector focus, we can help your organization drive
Partner down costs and compete more effectively.
clewis2@uk.ey.com
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Marlon Richardson All Rights Reserved.
Partner, Performance Improvement
mrichardson@uk.ey.com EYG No. DW0426
CSG No. 1407-1280223
Jim Perrine ED None
Principal
This material has been prepared for general informational purposes only and is not intended to
jim.perrine@ey.com be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for
specific advice.
Chris Pateman-Jones
Global Oil & Gas Advisory Sector Resident ey.com/oilandgas/capitalprojects
cpateman-jones@uk.ey.com
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